Acquisitions | 12 Months Ended |
Dec. 31, 2014 |
Acquisitions [Abstract] | |
Acquisitions | ACQUISITIONS |
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ATMI |
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On April 30, 2014, the Company acquired ATMI, Inc. (the Merger), a Delaware corporation (ATMI), for approximately $1.1 billion in cash pursuant to an Agreement and Plan of Merger (the Merger Agreement), dated as of February 4, 2014. As a result of the Merger, ATMI became a wholly-owned subsidiary of the Company. The Merger was accounted for under the acquisition method of accounting and the results of operations of ATMI are included in the Company's consolidated financial statements as of and since April 30, 2014. Direct costs of $13.3 million associated with the acquisition of ATMI, consisting of professional and consulting fees, and bridge financing costs, were expensed as incurred in the year ended December 31, 2014. These costs are included in selling, general and administrative expense and interest expense, respectively, in the Company's consolidated statements of operations. |
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ATMI is a leading supplier of high-performance materials, materials packaging and materials delivery systems used worldwide in the manufacture of microelectronic devices. These products consist of “front-end” semiconductor performance materials, sub-atmospheric pressure gas delivery systems for safe handling and delivery of toxic and hazardous gases, and high-purity materials packaging and dispensing systems that allow for the reliable introduction of low volatility liquids and solids to microelectronics processes. The acquisition was executed to expand the Company’s product offering base and technological base, and enhance the leverage of its selling and administrative functions. ATMI’s sales for the year ended December 31, 2013 were approximately $361 million. |
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The purchase price of ATMI consisted of the following: |
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(In thousands): | | | | |
Cash paid to ATMI shareholders | $ | 1,099,033 | | | | |
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Cash paid in settlement of share-based compensation awards | 31,451 | | | | |
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Total purchase price | 1,130,484 | | | | |
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Less cash and cash equivalents acquired | 321,094 | | | | |
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Total purchase price, net of cash acquired | $ | 809,390 | | | | |
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Under the terms of the Merger Agreement, the Company paid $34 per share for all outstanding common shares of ATMI (excluding treasury shares). In addition, the Company settled all outstanding share-based compensation awards held by ATMI employees at the same per share price. The acquisition method of accounting requires the Company to include the amount associated with pre-combination service as consideration in the acquisition, reflected in the table immediately above, while the fair value of the unvested portion of the awards in the amount of $21.3 million is recorded as expense, classified as selling, general and administrative expense, in the Company's consolidated statement of operations. |
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The Merger was funded with existing cash balances as well as funds raised by the Company through the issuance of debt in the form of a senior secured term loan in an aggregate principal amount of $460 million and senior unsecured notes in an aggregate principal amount of $360 million as described in note 7 to the consolidated financial statements. |
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The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the ATMI acquisition: |
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(In thousands): | | | | |
Accounts receivable and other current assets | $ | 107,967 | | | | |
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Inventory | 115,507 | | | | |
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Property, plant and equipment | 126,302 | | | | |
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Identifiable intangible assets | 297,040 | | | | |
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Other noncurrent assets | 13,216 | | | | |
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Current liabilities | (60,056 | ) | | | |
Deferred tax liabilities and other noncurrent liabilities | (122,710 | ) | | | |
Net assets acquired | 477,266 | | | | |
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Goodwill | 332,124 | | | | |
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Total purchase price, net of cash acquired | $ | 809,390 | | | | |
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The fair value write-up of acquired finished goods inventory was $48.6 million. This amount was recorded as an incremental cost of sales charge, amortized over the expected turn of the acquired inventory, during the year ended December 31, 2014. |
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The fair value of acquired property, plant and equipment of $126.3 million is valued at its value-in-use and is provisional pending the Company's completion of its valuation of certain assets, and its final review thereof. |
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The fair value of the acquired intangible assets is $297.0 million. The acquired intangible assets, all of which are finite-lived, have a weighted average useful life of approximately 8.3 years and are being amortized on a straight-line basis. The intangible assets that comprise the amount include customer relationships of $165.1 million (10-year weighted average useful life), developed technology and related trade names of $120.8 million (6-year weighted average useful life), and other intangible assets of $11.1 million (7.4-year weighted average useful life). |
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The fair value of acquired identifiable intangible assets was determined using the “income approach” on an individual project basis. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy. |
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The purchase price of ATMI exceeded the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $332.1 million, which reflects adjustments made during the fourth quarter by the Company to its preliminary allocations of the purchase price to the fair values assigned to the assets acquired and liabilities assumed recorded in prior quarters, primarily related to ATMI's property, plant and equipment, intangible assets and tax accounts. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company's ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill. No amount of goodwill is expected to be deductible for income tax purposes. |
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The final valuation of assets acquired and liabilities assumed is expected to be completed as soon as possible, but no later than one year from the acquisition date. Given the size and complexity of the acquisition, the valuation of certain assets and liabilities, is still being completed, and is subject to final review. Specifically, certain property, plant and equipment, as noted above, and ATMI's tax accounts are provisional pending the completion of and review of such assets and liabilities. To the extent that the Company's estimates require adjustment, the Company will modify the values. |
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Subsequent to the Merger, the Company agreed to make severance payments of $7.5 million to ATMI executives. Under the terms of various agreements, the executives are unable to compete with the Company for specified periods. Based on the Company's analysis, the payments associated with these noncompete clauses were capitalized as finite-lived intangible assets to be amortized over periods averaging 1.6 years. The fair value of these noncompete clauses was determined using the “income approach” on an individual executive basis, following a methodology similar to the one described above for acquired identifiable intangible assets. |
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Pro Forma Results (Unaudited) |
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The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisition of ATMI had occurred as of the beginning of the years presented. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. |
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| Year ended |
(In thousands, except per share data) (Unaudited) | 31-Dec-14 | 31-Dec-13 |
Net sales | $ | 1,076,334 | | $ | 1,051,175 | |
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Net income | 68,279 | | 60,324 | |
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Per share amounts: | | |
Net income per common share - basic | $ | 0.49 | | $ | 0.43 | |
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Net income per common share - diluted | 0.49 | | 0.43 | |
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The unaudited pro forma financial information above gives effect to the following: |
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a. | The elimination of transactions between Entegris and ATMI, which upon completion of the merger would be considered intercompany. This reflects the elimination of intercompany sales and associated intercompany accounts. | | | | | |
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b. | Incremental amortization and depreciation expense related to the estimated fair value of identifiable intangible assets and property, plant and equipment from the purchase price allocation. | | | | | |
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c. | Removal of the operating results of ATMI's discontinued operations. | | | | | |
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The unaudited pro forma financial information above for the year ended December 31, 2014 excludes the purchase accounting impact of the incremental charge reported in cost of sales for the sale of acquired inventory that was written-up to fair value of $48.6 million. |
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The pro forma data does not include data for Jetalon Solutions, Inc. for the period prior to its acquisition due to the immaterial impact on the pro forma financial information for the year ended December 31, 2014. |
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Jetalon |
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On April 1, 2013, the Company acquired substantially all the operating assets and liabilities of Jetalon Solutions, Inc. (Jetalon), a California-based supplier of fluid metrology products. The transaction was accounted for under the acquisition method of accounting and the results of operations of the entity are included in the Company's consolidated financial statements as of and since April 1, 2013. The acquisition of Jetalon’s assets and liabilities did not constitute a material business combination. |
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The purchase price for Jetalon included cash consideration of $13.4 million, funded from the Company's then-existing cash on hand, and earnout-based contingent consideration of up to $14.5 million based on the operating performance of Jetalon in 2013, 2014 and 2015. Costs associated with the acquisition of Jetalon were not significant and were expensed as incurred. |
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Upon acquisition, the Company recorded a contingent consideration obligation of $3.1 million representing the fair value of the earnout-based contingent consideration. This amount was estimated through a valuation model that incorporates probability-adjusted assumptions relating to the achievement of possible operating results and the likelihood of the Company making payments. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 measurement. |
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The purchase price of Jetalon consisted of the following: |
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(In thousands): | | | | |
Cash paid at closing | $ | 13,358 | | | | |
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Contingent consideration obligation | 3,094 | | | | |
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Total purchase price | $ | 16,452 | | | | |
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The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the Jetalon acquisition: |
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(In thousands): | | | |
Accounts receivable, inventory and other assets | | $ | 944 | | | |
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Identifiable intangible assets | | 5,634 | | | |
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Current liabilities | | (216 | ) | | |
Net assets acquired | | 6,362 | | | |
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Goodwill | | 10,090 | | | |
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Total purchase price | | $ | 16,452 | | | |
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The purchase price of Jetalon, including the Company's valuation of contingent consideration, exceeded the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $10.1 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company's ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes. The goodwill has been assigned to the Company's fluid management reporting unit. |
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The Company completed its fair value determinations for all elements of the Jetalon acquisition in 2013. Intangible assets, consisting mostly of technology-related intellectual property, are being amortized on a straight-line basis over an estimated useful life of approximately 10 years. |
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Subsequent changes in the fair value of this obligation have been recognized as adjustments to the contingent consideration obligation and reflected in the Company's consolidated statements of operations. During the years ended December 31, 2014 and 2013, the Company updated its assessment of the contingent consideration based on the valuation methodology described above and recorded gains of $1.3 million and $1.8 million in the Company's consolidated statements of operations, resulting in the reversal of the contingent consideration obligation. |
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Entegris Precision Technologies Corporation (EPT) |
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On April 2, 2012, the Company acquired the remaining 50% of its Entegris Precision Technologies Corporation (EPT) joint venture in Taiwan, an equity method investee in which it had previously owned a 50% equity interest accounted for under the equity method. The Company paid $3.4 million in cash for the additional 50% equity interest in the entity. The transaction was accounted for under the acquisition method of accounting and the results of operations of the entity are included in the Company's consolidated financial statements as of and since April 2, 2012. EPT's sales and operating results were not material to the Company's consolidated financial statements. |
The Company remeasured its previously held equity interest in the entity at its April 2, 2012 fair value of $2.9 million. Based on the carrying value of the Company's equity interest in EPT before the business combination, the Company recognized a gain of $1.3 million. In addition, in prior reporting periods the Company recognized changes in the value of its equity interest in EPT related to translation adjustments in other comprehensive income. As required under the acquisition method of accounting, the $0.2 million recognized previously in other comprehensive income was reclassified and added in the calculation of the gain noted above. |
The purchase price was allocated based on the fair values of all of the assets acquired and liabilities assumed. The sum of the purchase price of the additional 50% equity interest and the fair value of the equity interest in the investee held by the Company at the acquisition date exceeded the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $2.2 million, resulting in goodwill, which is not deductible for income tax purposes. EPT is part of the Company’s liquid packaging reporting unit. |
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As described above, the Company acquired businesses in 2014, 2013 and 2012. As part of the accounting for these transactions, the Company allocated the purchase price of the acquired entities based on the fair value of all the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed, as well as the Company's contingent consideration obligation in the case of Jetalon and the Company's previously held equity interest in the case of EPT, was based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company's management. |
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In performing these valuations, the Company used independent appraisals, discounted cash flows and other factors as the best evidence of fair value. The key underlying assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. There are inherent uncertainties and management judgment required in these determinations. No assurance can be given that the underlying assumptions will occur as projected. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy. |